NMDC Limited (526371) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Q2 FY '21 Earnings Call of NMDC. We have, from NMDC side, Mr. Sumit Deb, Chairman and Managing Director; and Mr. Amitava Mukherjee, Director of Finance. Thank you very much, sir, for joining this call today. And without much ado, I'll hand over the floor to you, Mr. Sumit, for your opening remarks.

Hello. Yes, the Q2 performance has been -- in fact, we have done quite well in terms of production also. NMDC production has improved in the Q2 by almost 13%. Sales have also picked up. Prices are looking better. And our margins have also improved, in fact, though not the H1 performance in terms of EBITDA margins are lower. But otherwise, if you look at spot EBITDA, EBITDA, our performance is much better. And going forward, I think we should be -- prices look good. So obviously, PAT has also improved by 10%. So that's very significant thing. And prices look -- definitely look better. Both international prices and domestic prices are looking upwards. Steel sales, if you look at the production of steel in the country, also has picked up. So we believe that things are very positive with regard to production. And in fact, though the -- in spite of the exceptional weather conditions in the Bailadila region, we have in the months of August, July, August and part of September also, our production has suffered. But otherwise, in spite of that, we have improved -- the production has improved. And we hope to now, once the -- I mean, the dry season has set in and now things are much better. So we definitely -- and we have made some modifications, some modifications have been made in the projects also. Some equipments are also in place. So I think we should be in -- the H2 looks very positive, and we should be performing very well. Thank you.

Should we start the question-and-answer session?

Yes, please.

[Operator Instructions] The first question is from the line of Amit Dixit from Edelweiss.

I have a couple of questions. The first one is on the iron ore operating involvement. So just wanted to understand that since there is a shortage of iron ore in Orissa we -- how are we planning to ramp up our sales volume? And what are we trying to do to take advantage of this situation? Or is it constrained by logistics or the inability of secondary street players to ramp up? Basically, how do we see operating landscape in Orissa? That is the first question that I have. The second one is on the residual CapEx of steel plant. Last time, we mentioned that in order to complete steel plant, we would be loading it with debt. So where are we on that?

So the first question with respect to the shortage of iron ore in Orissa. Obviously, there -- because of the non-operationalization of the mines in Orissa or the delay in non-operationalization of the mines, so there is some amount of shortfall, specifically in the secondary sector of the -- steel manufacturing in the secondary sector. So there is some amount of shortages. But our markets basically are different from Orissa. So in fact, our customers are a little bit different, so far. But in any case, there is a shortage and we are ramping up production. We believe that in the H2, definitely we should be able to nullify the shortfall in the production of around 10%, 11%. And hopefully, we intend to cross the last year's figures of production. Like I told you, we have made some adjustments in our Kirandul. There's a new line which has come up in the -- so that, we will also add to the production. In fact, we are seeing the results. And hopefully, we should be doing better. There is a lot of demand, the -- demand-wise, there is absolutely no problem. I would like to mention one thing here is that whatever demand is, the shortage of iron ore part, there is definitely an uptick in demand of steel. So that is also driving the requirement demand for iron ore also. So that is a very significant aspect. There is -- we are seeing steel plants ramping up their capacities. And we believe that -- so this will continue for some time, at least, as we see uptick in auto sales also, infrastructure is going up. So there is a demand for steel, and that's how the translating into requirement of iron ore. But obviously, the customers -- I mean, our customers are a little bit different from customers from Orissa, in anyway, so it helps us. So that is the other thing. That is one part of it. And our productions will -- you will see a definite improvement in productions in the subsequent H2. In fact, in the month of November, we are seeing quite a substantial jump in production. So to the tune of almost 30%, 40% improvement in production, monthly production. So we should be doing much better. Regarding the second. Second question, what was it exactly? What were you wanting?

So second question was that last time we mentioned that regarding the steel plant, whatever CapEx we'll be doing essentially will be through debt. We got to -- I mean as part of...

Yes. We have already taken INR 500 crores in terms of an LCD. By a balanced amount, I think Mr. Amitava will inform you about what is his plans for a balance amount of debts, which he intends to take on?

If I may add, we actually have, as CMD said, we have raised INR 528 crores through the NCD route. That's about a month back, 1.5 month back. And we have an authorization of raising INR 5,000 crores. So we will be raising more, but this year we will restrict it to around INR 2,000 crores or INR 2,500 crores. Right now, we are negotiating with the banks for the terms and condition and principle approval of the banks have been received, but the detailed terms and conditions are under negotiation. It will depend on how long the negotiations last. But the idea is to leverage the steel plant to the extent -- targeted extent of 40%, which is there in the DPR of the steel plant. As close to as 40% we can get, that would be our target for leveraging the steel plant.

Okay. And sir, just a brief follow-up on this. You mentioned something about INR 2,500 crores, I missed it. Can you please repeat it? And secondly, can you confirm that no CapEx, no incremental CapEx in steel plant would go from NMDC's coffers, essentially. You will be raising debt for that now.

That I can confirm because this year after raising, whatever we are funding is from the loan only. Part of the -- the interest on loan is also being capitalized under IDC, interest. So it is absolutely clear that this tranche of the loan is obviously being on the books of the steel plant. There's absolutely no doubt about that. What I said that we have an authorization from the Board to borrow INR 500 crores to INR 5,000 crores. Now we will not, obviously, buy or borrow that in 1 tranche because INR 5,000 crores, we will not be spending immediately. But what the outlook we have here, about INR 2,000 crores in the next 1, 1.5 years, we'll be spending. So that amount, we will need to borrow further. And that will be added to the INR 500 crores. So that will be INR 2000 crores, INR 2,500 crores that would be on my books as debt till such time the debenture is done. Is that clear?

Like Mr. Amitava has mentioned, the entire amount will be -- the entire balance CapEx will be through debt route only.

The next question is from the line of Rahul Jain from Systematix Shares & Stocks.

Sir, 2 things. One is on the steel plant. So where are we in the divestment process or the demerger process? You said it will take 9 months. So are we on track? Or to do the same we may make next year or something like that?

Yes, absolutely. We are on track. I think, again, DF will brief us on the demerger status and the disinvestment process.

Right. You see the demerger process has been initiated already. And the first stage, we immediately worked on proceeding. And the appointment of the transaction advisers, the legal adviser, et cetera, et cetera, and the valuer -- and the asset valuer, et cetera, have already been done. And these people have begun their work of cataloging the assets and other things that are required. So the preliminary work is under progress. And we would like to believe that, that is on schedule as of now. Because these transaction advisers, et cetera, are already there. They're doing their work. And it should take anything between 9 to 12 months from the date of initiation. So that is another -- everything thing between 7 to 10 months to go.

Right. And sir, also on Donimalai, we were expected to start production in October. What is the status on that? And also on follow-up, see, over the last 5 years, Chhattisgarh volumes have remained in the same range in of around whatever, 20 million and odd. So we were expecting some major improvement. So any progress on that?

So it's like this, Donimalai mining lease, which was under discussion, what had happened was in the month of August, a high level deal had gone through Donimalai and there were discussions which were held. And the discussions are very, very positive. And people wanted to ensure that the production starts at earliest. So what has happened is this would mean an amendment in the act. So that amendment is in the process. I think it needs to go to the cabinet, a draft amendment policy has already been circulated. So it needs to go to the cabinet and approvals. Necessary approvals are required. So that will be done, I mean.

So there will be a 22% additional premium payment only for this particular mine, right? Or is it applicable to the existing mine? Or...

It. No. No. It is like this -- this was an interim measure, which has been discussed. So that is what it is still not yet finalized. So it's an interim measure, which people were discussing. Finally, the Committee of Secretaries and the state and the center including the steel ministry, they will discuss and the final figure will then be applicable to all mines, which have been given under the allocation route. So it is not only NMDC, so all mines will be -- will have to have, let's say, that amount of premium.

This is mine allocated after 2015, is it like that?

Yes. On an allocation basis. So -- I mean it would apply to all mines.

So it will apply when new act will come on?

There will be -- it will depend on the amendment, which has to be done. So once the amendment is in place, then the committee decides mineral wise and -- mineral-wise and state-wise. So that's it.

So this process can take really long, right? So I mean, in the sense that we should not assume any volume for this year or maybe...

No, no. In the meantime, the discussions are on between the state and the center to ensure that the mining activity starts. So that is something which will happen before the secretary or which before the committee gives it.

So what is your positive assessment? When can you start the mine?

I would think, even last time also, we were very positive it would start. So there's some amount of clarification which the state wanted. So that is being given. So I would think very shortly. That's what I can say, right, at the moment.

So before the end of quarter, is that how we should look at it?

Yes, hopefully, yes.

Right. And then Chhattisgarh any -- because there -- it's been like at a static number, [indiscernible] 20 million roundabout for...

Yes. Yes, yes, for long yes, yes, yes. There were 2, 3 issues. One was that evacuation. Actually, we had an extended monsoons and there was heavy -- I mean the rainfalls were very heavy in that region. So it was very exceptional. I mean, last 10 years, rainfall, so exciting. So that is how the production got affected in the month of July, August. But otherwise, yes, we have been doing a figure, which is more or less constant but not been improving on. But then in the H2, you would definitely see an improvement. There's going to be -- because we have added on some equipment and then some modifications have been made. So H2, we are very hopeful. Like I said that already we are seeing signs of improvement. In this H2, we are seeing quite substantial improvement in production. So things should be better, definitely.

The next question is from the line of Reen Shah from Ashika Stockbroking.

Congratulations on good set of numbers. Sir, my question is, I just wanted to know what is your target production for FY '21 and FY '22?

You want to know what's our target production. See target production, see at this stage, we are -- at the H2 stage, we are 10% down vis-à-vis last year. So last year, we landed up at the figure of 32 million tonnes. So definitely, we will cross that figure of whatever we have done last year. So that's a definite figure at this point of time.

Okay. Any specific numbers?

Let's see going forward. I mean, right now, we are looking at crossing that figure. Hello?

Yes. Actually, I could not hear you.

So what I'm saying is that, definitely, we will cross the last year figure of 32 million tonnes. That's what I'm saying. The first half, we are down by 11%, but then we'll make up for it. And then we will cross that figure of 32 million tonnes. Because we are seeing improvements in the Bailadila sector, definitely.

Okay. And sir, where do you see pricing scenario from here onwards. Do you see further upside due to prices, which is going on?

Not because -- not, in fact, because of the crisis, but otherwise, also, we see definitely an improvement, yes. I would think that there would be -- further going forward also, there could be -- we could see improvement in prices.

Okay. Any expectation on percentage of that?

Can't really guess at this point of time. But then we believe that there is some scope for improvement in prices.

The next question is from the line of Nishtha Mukherjee from SteelMint.

My question is, sir, as you cited, there could be a chance of iron ore, short-haul due to the non-operationalization of the mines in Orissa, the auction mines. Do you see a room for imports in India?

There is some amount of imports because of the shortage shortfall. And there have been -- I mean, non-NMDC customers, yes, there have been people who have -- who could probably -- be importing probably in the West Coast. There could be -- but then prices of iron ore are also quite high at the point -- at this point of time. I don't know, must be around INR 119, INR 120. So prices are very high. In fact, comparatively, domestic prices are not much more competitive. So yes, I mean -- but then there is a shortage. So obviously, I would believe that there could be some more to import, probably concentrate, pellets.

The next question is from the line of Arpit Ranka from Kovil Investments.

Two questions from my end. To start with, RINL is one of our key customers. Basically, there were news reports about their subsidiary, OMDC is starting operation, which has an annual production capacity of about 4 million tonnes. What is our assessment of that supply starting and having potential impact on our supplies to RINL in the next year or so, whatever your take on that?

The OMDC mines of RINL, still some time, it should take some more time. That's my assessment. And a very small mine, 4 million tonnes. So not an issue at this point of time. And in fact, RINL is underperforming at this point of time. Their capacities are 7 million tonne capacity. They are hardly doing 4 million -- 3.5 million, 4 million. So at this rate, they will not be able to do the entire. They will not be able to reach that 6.3 million or 7 million tonnes. So there's a lot of scope. I think we are not really very concerned about RINL's capacity. And then we have automotive customers also. And with the substantial demand, we do not see any issues in the next couple of years, at least.

Okay. No, that's helpful. And also, 2 years ago, there were some news reports about NMDC trying to acquire litigated mines of OMDC BPMEL. Is it something that you've actively been looking at? Or they were just rumors with no substance to it?

No, no, we are not looking at any OMDC mines at the moment.

Okay. Great. And just one follow-up. I mean, because of COVID public hearing and all those things that kind of -- they're not possible and EC/FC and -- like issual of those are kind of the time line, that kind of, it gotten extended. What is on the ground situation as per your assessment of that? Has it been streamlined again? Or do you see that the impact of COVID is still kind of hampering any progress on that front for any mines?

You are specifically talking about Orissa?

Yes, Orissa, yes.

Okay. Okay. So Orissa, definitely, the fact there is an effect of COVID, all miners are suffering. Everybody has suffered in this period, specifically in the first -- in the Q1, but things are now better, especially the people who have taken up these mines. But then we got to also know -- understand that most of the mines have been -- major capacities have been taken by the captive miners. So that is not going to be available -- so that amount of ore is not going to be available to the people, to the steel manufacturers or the secondary sector. Basically, the secondary sector is affected because of that. So that is one thing. The other thing is that things are improving now. Production is slowly ramping up. And going forward, I think in a couple of months, things would be much better in Orissa, though there have been some stockpiles. But then what has happened is that there have been a lot of exports of pellets and iron ore on the lower grade. So that is why the issue has been -- I mean, it has got magnified, the shortages. A lot of exports of pellets and iron have taken place. And specifically the cockpiles, which are still available in -- with the existing miners.

Okay. No. So what I was trying to understand, sir, is given the shortages, which is like, everybody is aware of it, and everybody is trying to find solutions around it, is the ministry and the government trying to expedite the process of issuing EC/FC, which are pending and public hearing, which is a key component of that. Is this again back to normal? Or there are still kind of hurdles in getting the process right?

Yes. I do not think with the existing mine -- with the mines, which have been auctioned, I don't think that the EC/FC problem exists because that has been carried on to -- the existing EC/FC approvals are already are going to the new miners. So that is not a major issue. I do not think that could be a major issue. I think the real activity of mining would be here, ramping up of production would be. Of course, the government is seized of the situation and it will -- whether the state government because that's -- there's a loss of revenue. So the government, whether the Central Ministry or the Government of Orissa, they are seized of the situation, and they are persuading the people to actually ramp up the production. So things should improve in the next couple of months, things should be much better.

The next question is from the line of Kamlesh Bagmar from Prabhudas Lilladher.

Yes. Sir, just one question on the part of this lease renewal premium. So where it is stuck? So would it require the government to come out with a alteration in the act or it will be required by one certain ministry? So what would be the modality for that? So would there be a change required in the entire act? Or it would be by a simple, like say, just from the -- approval from the state government or all that?

You're talking about Donimalai. So it's like this that post 2015, there's a provision for application of premium. So that doesn't exist in its mines, which have been allocated pre the 2015. So there obviously, it needs -- if you need to apply any premium, you need to make an amendment in that and the process of determining the premium. This is for mines which are allocated under the allocation category. So obviously, there's going to be an amendment in that. But then in principle, it has been agreed that whatever happens the amendment or whatever changes in that, that will take place, that the Central Ministry will take care of that. However, in principle, the state has agreed that production can start. And whenever that -- whenever the premiums are announced, they will apply.

But similar demand can be made by the Chhattisgarh government as well.

So what happens is that, this is an amendment in that and all miners were falling under this allocation route. So we will have to pay that whatever -- I mean whatever is decided by the government. So that's not a -- it is a general rule which will apply for everybody in the country.

Okay. So just one clarification, maybe, sir. So would it be applicable for Chhattisgarh mines or not?

Like I said, it could apply to every mineral, it is not only to iron ore. It is going -- under the allocation route, it's going to apply to every mineral, every state. So it is nothing very -- near, which is only going to be -- not only going to be Donimalai per se, or in Karnataka or in iron ore, it's going to apply to all minerals, which have been awarded on this allocation route. So that's what is my thought on.

The next question is from the line of Prayatn Mahajan from Kotak.

It's Sumangal from Kotak. A couple of questions. Sir, first, again, on the Donimalai mine, our understanding was that the provisional duty of 22.5% have been agreed, and the mine can start very soon in August end. But since last 2, 2.5 months, we've not seen any progress. So while we are waiting for the amendment, what is the restart basically waiting for? I mean, is it kind of an approval or a formality pending?

Yes, yes. There is some sort of a formality because this is a matter, which needs to be sorted out between the state and the center. So that -- once that is done and the NMDC then gets informed, they inform us that we can start our mining process because ultimately the state is the owner of the minerals. So they will have to intimate us. And once they tell us that you can start mining, we'll go ahead.

Understood. And just to -- I mean, on the Chhattisgarh mine, you said that it will be applicable to all the mines. A renewal has been done from April 2020 onwards. So can we expect since it's the second renewal -- or because it's the first renewal, sorry, this amendment will be applicable to all the [Audio Gap] mines first renewal onward, so we might have a retrospective charge on whatever we have produced in FY '21 at whatever royalty has been decided, say 22% of all on the revenue. Is that a fair assessment?

No. I have my own reservation. See, one thing is for sure that retrospective effect to a thing, it is not applicable. There cannot be anything retrospectively. Probably it can be -- things would be prospective. But retrospective effect to a act is not possible. That's what our understanding is.

Okay. But then we need not wait for the next renewal, right? It would be applicable for this renewal itself.

Yes, yes, applicable for this renewal. But whether it is -- I mean, the fact that you are mentioning -- what you would like to mention is that it's going to be an applicable retrospective. So I do not think that is going to be applied -- would be applied retrospectively. I think -- yes, Amitavaji, if you can have anything to say on this, you can mention.

Yes. See, ideally, we would like it not to be applicable at all. At the worst case, we'd like to be applicable prospectively. But whether it is prospective or retrospective will depend on the amendment of -- the ordinance of the amendment to the act. So it is very difficult for us to speculate. Your guess is as good as mine. But we'll hope that since we have already produced for about -- more than about a year now by the time [indiscernible] comes in, and since we've not been in a position to recoup it, so I think let us hope -- we would like to hope that on account of natural justice that will not be on retrospective effect. But the actual thing is that we cannot preempt, we do not know what the government will actually notify. So, we'll have to wait for that. But let us hope that it will be only with prospective effect.

Understand. And the Kumaraswamy mine is also getting the lease is expiring next year. So eventually, we can assume whatever is the new duty, which is notified, the entire company will move from, say, currently 20% odd royalty to, say, if it is 22.5% or say 42% to 43% royalty. That's the proper understanding?

Currently at 15%, Currently at 15%, but whatever gets notified, we have to pay for Kumaraswamy also, yes.

Okay. And sir, when this announcement had come August end, it had a very specific time line. I think the minister had said 3 months. So is the time line still you feel will be honored some time in November end? We will get to know what the revised amendments and the royalty?

Looks like that the 3 months period, doesn't appear to be very -- I'm not very hopeful, but then something should happen. I can't say about the time lines, of course, where it was said that it would be done in 3 months. But right now, the way it is not looking at 3 months, probably it should take some more time.

Understood. Sir, one question on the steel plant. So what sort of -- I mean, post the demerger, what sort of divestment is planned? Is it like creating a mirror image, where government will own, say 70%, 30% will be similar minority as what we have? Or we are looking for a strategic buyer?

Right now, I would say demerger thing is a mirror image of this company -- of the company. And then the government's divestment is fixed on its own stake.

Mr. Mahajan, may we request that you return to the question queue for follow-up questions, as there are several participants waiting for their turn. Thank you. The next question is from the line of Vineet Maloo from Aditya Birla, Sun Life AMC.

Sir, I just wanted some clarity on what are the levies that you're currently paying in Karnataka? so I understand there's 15% royalty. There is DMF, there are some surcharge effect on these two. Then there's a 10% amount which is being collected on behalf of the Empowered Committee. Can you just highlight what other levies are there major that I might be missing on them?

DF, can you take that?

Yes. As you rightly said that the royalty is 15%, and on that 15%, there's a DMF and amenity at the rate of 13% -- 30% on 15%, and 2% on 15%. So these are the levy. Now when this money, unfortunately, in Karnataka does not flow into our bank accounts from the customer, it goes to the monitoring committee. And then monitoring committee retains 10% for R&R and temporally, retains another 10% for SPV. So that -- we are supposed to do as soon as the Supreme Court grants us the refund. We will get around INR 2,200 crores straight back from the monitoring committee. That is on account of R&R that is being retained, and for SPV that they are taking 10%. So this is the current scenario. Regarding the monitoring committee fee, you will find it in the books of account the amount of [Foreign Language]. Although we charge off both this 10% of SPV and 10% of -- for R&R in our books, we take that as an expected credit loss.

Understood. Okay. Sir, versus this, does the captive user also has to pay this 10% amount or not at all?

No. All miners in Karnataka have to pay.

In Karnataka, in Karnataka.

That SPV part, at least, everybody is paying.

Sorry, only the first 10%?

Yes. Yes.

Yes. Because in -- for all other mines, you see there are 2 parallel cases in the Supreme Court. One for us, NMDC, which was granted the first go-ahead for mining after the ban, that we have 3 or 4 days of the ban and there is another for all the private miners. Now for a customer who buys from a private miner, he pays directly 90% to the seller, not through the monitoring committee. And 10%, he pays to the monitoring committee. But in our case, the 100% receipt is being -- is through a monitoring committee, because although we have mentioned it many times in the Supreme Court, we have not been able to get a date to hear it. So we are hoping in 1 or 2 hearings, we'll get the refund. And like other ones that Supreme Court hearing is done, then like any other customer in Karnataka, the customer will give me directly 90% of the sales proceeds and give 10% of the sales proceeds to the monitoring committee, like any other person.

Okay. Okay. So this is part of the -- sir, the base price that we have, right, and royalty is on top of this?

Yes. Yes.

Yes. INR 100 I collect, INR 120 is the actual cash inflow to the monitoring committee. That -- of that around INR 115 would be going to be royalty. INR 80 is paid to NMDC, INR 10 is retained and INR 10 is appropriated. This is the math here.

Okay. So okay. So in effect, there's actually a royalty on these two 10% charges also?

No. Yes, yes, yes. Obviously, obviously.

Yes, yes, okay. Okay. Understood. And sir, so same would hold true for any other like GST effect and all those things, right?

Yes, yes.

[Operator Instructions] The next question is from the line of Dhaval Doshi from Pinpoint AMC.

Sir, just wanted to ask one question. With regards to this -- the rate that we're talking about for the Donimalai mine, is the government planning this for all mines on an allocation basis after the MMDR amendment or the older ones as well?

No, all mines, which have been given on allocation.

But is that after the MMDR amendment or prior to that as well?

Okay. So there has been some sort of an amendment in the act to make provision for this. So once that amendment comes in, it will be applicable for all mines to be given on allocation.

Sir, you didn't get my question. So, for example, there are other miners who were owning those mines since or who've been allocated those mines for more than 10 years. Even those will be applicable? Or...

Yes. That is what I'm saying. In fact, the post-2015 -- the pre-2015 also, so that would mean the mines which are falling into the category which you are pointing out, yes.

That will be on renewal or from today?

No. That will have to be seen now how the amendment comes out. But I would believe it would be applied to everybody whenever that comes out.

No, no, sir. No one is trying to dig. In fact, I'm just trying to understand what are the counters of this.

See I won't know what specifically would be there. I mean, whether it's on applicable on renewal or it would apply from day 1. So that has to be seen on. So just can't speculate on that.

The next question is from the line of Mohit Bhansali from Bonanza Portfolio Limited.

I just want to know that in international market, the prices has gone up, and they are almost 7 years high. So are we also planning to increase in tandem with that? Or our price will be -- I think there is a differential of around 30%, 40%. What is your take on this, sir?

No. We are increasing prices whenever we see an opportunity. And since our markets -- our target markets are generally the steel plant, the domestic manufacturers, so we accordingly have a pricing strategy, which focuses basically on the domestic sector. So obviously, we also look at the import parity also. That's also one factor, which is also under consideration whenever you take a call on prices. But primarily on the domestic scenario, our prices are based on the domestic scenario. And we have -- we see an uptick in prices. And definitely, we will -- the opportunity, whenever there's an opportunity, we'll take it up. And prices, yes, we see improvement in prices going forward also.

Okay. Sir, what is the differential right now if we see the international price, right now seeing domestic prices? I mean, what will be the differential right now?

Should be around 25%, 30%? Yes, DF, any idea? Landed cost?

Landed cost on eastern cost would be at least a 45% to 50% lower than the international price of the imported overhead by that.